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Towering list of troubled banks. The FDIC's watchlist of potentially problematic banks grew by more than a third to 416 in Q2, the highest level in fifteen years and equivalent to around 5% of the country's banks. The deposit insurance fund, which protects more than $4.5T, fell to $10.4B from $13B in the previous quarter (though that news should perhaps be less troubling to investors than some headlines suggested). Bank loan loss provisions rose to $66.9B from $60.8B, while the U.S. banking industry posted a net loss of $3.7B after a profit of $7.6B in Q1. FDIC's Sheila Bair acknowledged the heavy costs of rising bad loans and falling asset values, but noted "banking industry performance is, as always, a lagging indicator." (Read the FDIC's press release)

Fed may trim planned MBS purchase. The Federal Reserve may not need to buy back the full $1.25T in mortgage-backed securities the bank is authorized to purchase by the end of the year. Richmond Fed President Jeffrey Lacker said the bank will evaluate “whether we need or want the additional stimulus” from buying the full amount, while St. Louis Fed President James Bullard said "it might not be necessary." However, even if the Fed chooses to stop short of the full $1.25T of purchases, Bullard said total spending would still be close to that target. (Read Lacker's speech)

GDP shrinks less than expected. GDP fell an annualized 1% in the second quarter, in-line with an estimate released last month but better than the 1.5% contraction economists expected. Business inventories fell a record $159.2B, worse than the $141.B estimated earlier. However, analysts believe the fall in inventories has likely reached its bottom and, excluding inventories, GDP rose 0.4%, its first gain in a year. Personal consumption was down 1%, better than the -1.2% prior estimate and consensus of -1.3%. (Read the BEA's GDP report)

Sweden goes negative. Swedish Riksbank became the first central bank in the world to introduce negative interest rates on bank deposits. Riksbank is hoping the move will encourage banks to lend more. The move will be closely watched by other central banks, and Bank of England's Mervyn King has already hinted he may follow Sweden's lead to avoid a liquidity-trap in the U.K.

Benmosche helps AIG rally. Shares of AIG (NYSE:AIG) continued to rally yesterday, gaining nearly 27% after new CEO Robert Benmosche said he's been in contact with former chief Hank Greenberg, hoping to draw on his advice about problems at the bailed-out insurer. Benmosche also reiterated his intent to take a slower approach to asset sales, giving the market a chance to recover first because "if we sell too soon, everyone loses." Separately, a recently obtained draft of a Treasury document called the government's investment in AIG 'highly speculative,' a phrase later omitted from a final version of the document.

Google News faces antitrust probe. Italian antitrust regulators have opened an investigation into Google News (NASDAQ:GOOG), concerned the service may be an abuse of the company’s dominant position on the internet. The investigation marks the first time Google News has faced a complaint on competition rather than copyright grounds.

China iPhone in Q4. China Unicom (NYSE:CHU) said Apple's (NASDAQ:AAPL) iPhone will go on sale in China in Q4, and both the original iPhone and a 3-G model will be available. Apple will face competition for Chinese marketshare from Research in Motion's (RIMM) Blackberry and smartphones powered by Google's (GOOG) Android software.

Dell doesn't disappoint. Dell (NASDAQ:DELL) posted better-than-expected Q2 results yesterday (see details below) after cutting costs by contracting out more production. Dell, which is trying to save $4B annually, managed to raise gross margins to 18.7% by farming out as much as 40% of the company's manufacturing. The company said it's seeing "seasonal demand improvements" in both its consumer and government businesses.

Japan's joblessness rises. Japan's jobless rate rose to a record 5.7% in July, threatening to undermine the country's recovery efforts and a punishing blow to Prime Minister Taro Aso ahead of elections his ruling Liberal Democratic Party will likely lose. Consumer prices dropped a record 2.2% compared to the previous year.

U.K. GDP contracts. U.K. GDP contracted 0.7% in the second quarter, slightly better than the previous estimate of 0.8%. The economy shrank 5.5% from a year ago, the most since records began in 1955.

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